How Big Tech layoffs could impact some of the most expensive housing markets

A series of layoffs at major U.S. tech companies could put pressure on local housing markets amid a broader national chill.

These layoffs, prompted in part by a series of Federal Reserve interest rate hikes and lower revenues, could lead to forced sales, hurt buyer confidence and result in lower down payments, even from buyers who remain employed.

“The housing market is fueled by confidence, affordability and, most importantly, jobs. Housing demand in tech-heavy metros is expected to be weaker in the near term,” Ali Wolf, chief economist at Zonda, told The Hill.

“In some cases, potential buyers will not have both the financial capacity to purchase a home and the consumer confidence to complete the purchase,” she said in an email to The Hill.

But some of the most immediate negative housing outcomes could come from damage to the collective psyche of the community as residents watch their peers lose their jobs.

Over the past month, a host of Big Tech companies have collectively laid off thousands of employees after a period of explosive growth during the coronavirus pandemic.

That growth was spurred by near-zero interest rates from the Federal Reserve and a series of stimulus checks from the Trump and Biden administrations that enabled robust consumer spending amid pandemic-related lockdowns.

Now, after a series of significant interest rate hikes by the US central bank aimed at containing inflation, revenues are falling and tech companies like Meta, Twitter and Amazon are responding with layoffs for lower the costs.

These cuts could put pressure on a housing market that is experiencing a deeper slowdown after a more than two-year boom marked by sky-high prices and rock-bottom mortgage rates.

Mortgage rates are starting to fall after months of historic growth, which put the 30-year rate above 7%. And last week, after a Labor Department report showed weaker-than-expected inflation, the 30-year fixed mortgage rate saw its biggest one-week drop in more than four decades, falling to 6.61. %.

Still, persistently high rates are driving the number of homes under contract nationwide to record highs, and nearly 60,000 deals failed in October. Even Silicon Valley cities like San Francisco and San Jose saw an increase in home sales cancellations last month, with sales down 6% and 8%, respectively.

However, the number of cancellations in these cities is still the lowest among major US metros.

“The Fed’s actions to rein in inflation are causing the housing market to slow at a pace not seen since the financial crisis,” Chen Zhao, head of economic research at Redfin, said in a press release this week.

“There are already early but promising signs of slowing inflation, which led to lower mortgage rates last week. If this progress continues, buyers who have recently walked away from deals could return to the market. and sellers may be less inclined to reduce their prices.”

The data also shows monthly declines in home prices nationwide. In October, prices fell 1.4%. But they are still up 4.9% from a year ago, with the median home price selling at $397,549.

San Jose and San Francisco are among five US metros that have already seen year-over-year price drops. Prices were down 4.5% from a year ago in San Francisco and 1.6% in San Jose.

However, these two metropolitan areas are still among the most expensive in the country. The median price for homes sold in San Francisco in September was over $1.4 million, while the median price for a home sold in San Jose last month was around $1.2 million.

As the market trends lower, experts say local economies could come under additional pressure from the layoffs, although their real impact on the housing market may be difficult to gauge.

“At a high level, there is reason to suspect that tech layoffs will put downward pressure on prices in both the sale and rental markets,” said Rob Warnock, senior research associate at Apartment List, at The Hill in an email.

“It’s intuitive – unemployment and job uncertainty generally encourage people to spend less on housing, and as the tech industry feels more cash-strapped, there will be less IPOs that will unlock the capital some employees rely on for down payments,” Warnock added. .

Warnock warned that it could be difficult to assess the true impact of these layoffs as part of broader economic trends. These include an annual seasonal slowdown in the housing market and a “high interest rate economy that discourages people from moving, regardless of their industry or employment status.”

Still, these layoffs add pressure on buyers and sellers and could even force them to make choices based more on time than price, according to Wolf.

“Layoffs can sometimes result in a forced sale, a sale where the owner has to move for financial rather than personal reasons. Owners who are motivated to sell can be less price-focused and more time-focused,” Wolf said.

“It means sellers may be willing to price their homes more competitively just to secure a sale, even if that means below recent prices,” she added.

Redfin deputy chief economist Taylor Marr told The Hill that other economic factors could outweigh the real impact of tech company layoffs.

“There are a lot of other factors also at play here – namely that the Nasdaq is still in a bear market in 2022 and that is hurting these local economies and housing markets more – already, the value of homes in Seattle and SF were down 9% between May and August – according to Case Shiller – and are expected to decline further since then,” Marr said.

But he said it’s important to note the psychological impact.

“Psychological feedback loops are more noticeable and pervasive because just having a close relationship with someone who was fired or at a company that makes big cuts or even a nanny who worked for a tech and was also fired has more impact on the psyche of these markets. “Marr said.